Estate Planning Update

Congress has not yet enacted any stopgap measure to prevent the federal estate tax from sun-setting in 2010. Here is a summary of the status of the law:

Law in 2009
The first $3.5 million in assets was exempt from tax, with a 45% tax on any excess. Property heirs received had a basis equal to the fair-market value on date of death.

Example: Mom owned AT&T stock she purchased for $5,000 that is valued at $25,000 on her date of death. Son receives stock worth $25,000 with a basis of $25,000 (the basis is “stepped-up”). If he thereafter sells the stock for $25,000, son will not incur any tax because there is no gain.

Law in 2010
There is no estate tax at all, on any size estate. Property heirs receive retains the donor-decedent’s basis, meaning that many will inherit assets that have capital-gain tax liability if the asset is sold.

Example: Facts are the same as above. Now son receives stock worth $25,000 with a basis of $5,000. If he thereafter sells the stock for $25,000, son will be taxed on the $20,000 gain at capital-gain tax rates.

There is an exemption from capital-gain tax on the first $1.3 million in assets and an additional exemption for assets received by spouses only of $3.5 million in assets.

Law in 2011
Unless Congress acts otherwise, the 2001 law comes back: the first $1 million in assets will be exempt from tax, with a 55% tax on any excess. Property heirs receive will have a basis equal to the fair-market value on date of death.

Example: Same as 2009 example.

This is a period of uncertainty for those who would like to have an estate plan in place. We suggest you review your will, think about what you wish to do if taxes were not an issue, and then speak with your estate planning advisor. If creating a legacy is something important to you, keep in mind that every penny allocated to North Shore-LIJ will be received free of estate or capital-gain tax; that you can allocate assets that would otherwise be taxed at high rates to charity and assets that would be taxed at lower rates to your individual heirs; and that you can make gifts during your lifetime, which removes the assets from your estate and any possible taxation at that time.

For more information, please contact Alexandra P. Brovey, Senior Director of Gift Planning, at (516) 465-2610 or abrovey@nshs.edu.